The 1% increase to the Public Works Loan Board (PWLB) rate will cost councils £70m a year, town hall chiefs have warned.
In a letter to chief finance officers, the Treasury hiked the interest rate charged on loans to local authorities by one percent, taking the interest rate from 1.8% to 2.8% with immediate effect.
The Local Government Association (LGA) warned the increase will significantly increase the cost of borrowing for councils and put capital schemes at risk.
A spokesperson for the LGA said: 'This 1 per cent PWLB rate increase could cost councils an extra £70 million a year for borrowing to be undertaken in the next year.
'It presents a real risk that capital schemes, including vital council house building projects, will cease to be affordable and may have to be cancelled as a result.'
Regeneration company Be First called the decision 'dysfunctional' and warned it will hit public housing projects hard.
Managing director Pat Hayes said: 'It’s a dysfunctional decision by the Johnson led Government - it looks like the left hand doesn’t know what the right hand is doing.
'Boris Johnson promised to put ‘rocket boosters’ under the economy to boost economic growth in preparation for Brexit. But the reality is that the Treasury is choking off funding for badly needed housing and public infrastructure projects.'
Visit The MJ (£) for more on this story.
